Stiglitz: The Prospects of Sound Recovery of The Banking System are Very Bleak

Bloomberg reports that Nobel laureate Joseph Stiglitz thinks that the prospect of a default by the U.S. or the U.K. is an absurd notion constructed in financial markets. However, the says that banks recovery prospects are very bleak.

Speaking in London, Stiglitz says that both the U.S and the U.K. deserve to keep the Aaa rating and the likelihood of a default is very small, particularly in the U.S. "because all we do is print money to pay it back,” “The notion of a default is so absurd, it’s another reflection of the absurdities in the financial markets.”

Moody’s Investors Service (rating agency) says the grade may face pressure without more action to cut the budget deficit, Stiglitz said the economy requires more stimulus right now.

More stimulus needed

“What we need now is a second round of stimulus,” as well as action to aid over-indebted homeowners; “if we don’t, the heavy level of indebtedness is going to press down on the economy.”

Europeans countries under attack

“Europe should show some solidarity to the countries that are being attacked,” adding that there are some very big bumps in the road ahead for financial markets.

While banks are generating profits, “very little of it comes from lending, a lot of it comes from speculative arbitrage,” “The prospects for a sound recovery of the banking system are very bleak.”

If the U.S Were a Corporation Its Credit Rating Would be Junk

Marc Faber's colorful interview with Bloomberg: If The U.S. Were A Corporation, Its Credit Rating Would Be Junk. Watch directly at Bloomberg TV or below:

Profit From Trading Currency ETFs

Today we look at two popular currency ETFs: FXC (Canadian dollar) and BZF, Brazilian real. These have become quite popular after the near-collapse of the US dollar in 2008, and it is easy to see why.

We track all currency ETFs live here.

Here are the charts showing the monthly buy and sell alerts for both ETFs (please click to enlarge):





By following the red (sell) and green (buy) triangles, you can have good idea of the results.

These are the results of the alert signals for $10k initial investment in each of the ETFs.


(please click to enlarge)

• BZF's ROI is +45.05%, compared with a loss of 1.99% for a buy and hold strategy.
• FXC's ROI is +37.26%, compared with a gain of 5.95% for buy and hold.

Again, as shown in other back testing results, the tool has worked quite well for currencies.

If you wish to try the tool on any stock or ETF, please use this link (and get 2 months free).

Teck Reports Today: Straddles to Profit Up or Down

Tecl Resources Ltd., TCK, reports earnings after the close today. The stock has gone up in anticipation and is trading around $33.03, about 4% higher than Friday.

These are February straddles to benefit in case of surprises:



Computed with StraddlesCalc Tool. If the stock moves roughly 9%, then the position swill be profitable.


Please do your own due diligence. This is not advice. Options are very dangerous and may cause 100% loss.

You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbol in the Technical Trend Analysis Tool.

Top 30 Most Attractive ETFs to Buy and To Sell out of 800+ ETFs

The recent market drop had caused significant changes in the valuation and the relative strength values of ETFs.

We computed the relative strength levels of all ETFs on the market. These values provide a very good indication of overbought and oversold levels.

By looking at the daily, weekly, and monthly values an investor can select the appropriate investment horizon, short term, medium term, and long term respectively.

Here they are ordered by RSI daily (short term), for 60 ETFs, 30 oversold and 30 overbought.

Top 30 Most Oversold:

With a daily RSI of 6.24, which is near a record low in recent memory, EMB is the most oversold in the short term, it represents Emerging Markets Bonds.

Next is the PNXQ, which I only mention because it is a rather interesting ETF that tracks NASDAQ Q-50 index, designed to track the performance of the 50 securities that are next in line to replace the securities included in the NASDAQ-100 Index. PNXQ is very illiquid.

Following those we have EU, a Euro tracking ETF. This is a sign of the recent troubles and concerns over European nations.

Top 30 Most Overbought:



In the most overbought category we have EUO, which is an ultra short Euro ETF.

2nd most overbought at the moment is ZSL, an ultra short silver.

Note: You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).

Here are all the ETF names and their average trading volumes (as reported by Google):

Chocolate Anyone? The Top Commodity ETFs to Buy, (Chocolate ETF is Oversold)

There is no better excuse to buy chocolate now.

We computed the relative strength levels of all commodity ETFs and ETNs on the market. These provide a very good indication of overbought and oversold levels.

By looking at the daily, weekly, and monthly values an investor can select the appropriate investment horizon, short term, medium term, and long term respectively.

Here they are ordered by RSI daily (short term):

(please click to enlarge)

Most oversold are

• NIB: Cocoa
• PWND: Is wind a commodity? Well, PWND is oversold.
• RJZ: Metals
• JJU: Aluminum
• JJT: Tin

There are no overbought ETF in the short term, in fact in any timeframes. Investor beware.

SPX Loses 34 Points, Previous Drops Over 30 Points In 2009 and 2008

The S&P 500 (SPX) lost 34.11 points from the previous close. The previous 30+ point drop had been on April 20 2009.

These are the last major drops since early 2008. All drops greater than 30 points or greater than 3.11% are shown below.

Markets Are Tanking: 1066 is the Level to Watch

This is a great video on today's market situation. SPX (click for alerts), the S&P500 index, is currently at 1070:

Roubini on Greece's Impending Default Crisis

The markets are falling hard - again - in great part due to the impending Greece default/bailout.

Nouriel Roubini, Dr. Doom, wrote a piece on Forbes magazine in whih he says the credibility of the euro and European institutional arrangements is on the line.

"At their Jan. 18, 2009, meeting, eurozone finance ministers kept pressure on Greece to fulfill its commitment to cut its budget deficit below 3% of gross domestic product by 2012. In February the eurozone finance ministers will more fully evaluate the country's spending plans and recommend a timetable for Greece to trim its deficit, estimated at close to 13% of GDP in 2009.
Since the eurozone is a monetary union with a no-bailout clause rather than a political or fiscal union with the associated fiscal federalism, budget cuts to contain the explosion of Greek public debt are urgently needed. In 2010 a sustainable fiscal adjustment must be delivered to restore policy credibility, market confidence and ECB/EU member-state solidarity".

Roubini says that the current and latest default crisis was trigegred by three coinciding events:

1. Greece's sharp budget deficit revisions from as low as 3.7% of GDP to 12.7% in October,
2. the announcement of the beginning of the ECB's exit strategies,
3. the Dubai default

"While in March spreads were broadly driven by a common systemic risk factor, the latest spike bringing Greek yields and CDS spreads to new highs is mostly a country-specific story, brought to light by a change of government and the revelation of far larger budget deficits than previously known and a severe cyclical and structural deterioration in public finances. In tackling the deficit, Greece faces a Hobson's Choice: whether to accept social pain with financial and economic stability, or instability. Whatever it chooses, Greece will face economic pain and difficult socio-political fallout. Deep spending cuts or tax hikes, which comprise the bulk of Greece's current plan, will curb or even derail recovery, perhaps inciting social unrest. But if the debt becomes un-financeable in the primary market or if Greece elects to exit the euro and devalue and re-denominate its liabilities (a la Argentina), this could render its banking system insolvent and tip it into economic and financial isolation and decline, also with dire socio-political consequences.

While a buyers' strike has been averted for now with Greece's successful auction of five-year government debt at 6.2%, the additional yield investors requested was substantial. The possibility of a buyers' strike in the primary market in the future may further test Greece's political commitment to fiscal adjustment and economic stability, as demanded by its treaty obligations and the strictures of a currency union.

Going forward, once Greece has delivered what the EU Commission, ratings agencies and stakeholders in the markets judge to be an adequate pound of flesh, we expect the ECB to take on a more constructive stance, especially in view of the stricter collateral requirements that will be put in place by the end of 2010. The risks of not doing so would entail a judgment that Greece could, in theory, be surgically removed from the eurozone without starting a domino effect in other countries with high or escalating public debt burdens, some of which are far larger economies and hence could have an impact on the regional and global financial and economic systems. Alternatively, a sovereign upgrade to A- by two ratings agencies after the budget effort meets approval could also be part of the solution".

The endgame

Roubini expects "the extraction of a pound of flesh and a bit of a fiscal compromise that together restore debt sustainability". He states that will require a combination of further sharp fiscal adjustment, like Ireland and a signal of support from the ECB. In response, CDS spreads will peak, and improved signals from the ratings agencies will bring cash bond yield spreads back down to earth.

"Over the longer term, of course, there is no alternative to tackling the competitiveness deficit in Greece and in other member countries as well".

Having Fun With The Toyota Shameless Media Pounding

While the media keeps shamelessly pounding TM, here are our previous straddles results, as of 10AM:

This is fun!

Please do your own due diligence. This is not advice. Options are very dangerous and may cause 100% loss.

Computed with StraddlesCalc Tool

Not Too Hot, Not Too Cold: UNG Straddles To Profit Either Way

Natural gas storage inventories will be published at 10:30 today. We have had very cold weather in the East, but has it been the same in the west? Temperature has an effect on natural gas drawdowns.

This is the current chart, ahead of this week's inventories, comparing 2009 with 2010 levels:

As can be seen, levels have come down significantly, from the well-above average that they were until late last year.

Regardless of direction, temperatures, or storage levels, straddles can profit, either way up or down, as long as the stock moves the required amount. Here are the February versions for UNG, with prices as of EOD yesterday:

100% loss. Computed with StraddlesCalc Tool

Please do your own due diligence. This is not advice. Options are very dangerous and may cause

Feasting on Toyota Straddles: Profit of +29.4%

On January 28 we posted the straddles for Toyota Motors, TM. Here are the current results, for February to July months:

(please click to enlarge)

All positions are profitable. As expected, the current month options offered the largest gain, at +29.41% in one week. This is followed by March position, at +25.97%. Even the July position is profitable at +8.19%.

The campaign against Toyota is going on strong, the beating goes on. The obvious beneficiaries are Ford and GM. Please remember that last quarter Ford boasted of a profit, but most of its profit was from credit operations (a la GM in the past). Investors should be extremely concerned with this campaign against Toyota. I believe the company will be eventually vindicated. As usual, straddles are one the best ways to play, profiting if the stock goes in either direction.

You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).

Straddles computed with StraddlesCalc Tool

The Top 20 Stocks to Buy and To Sell Out of the Top 100 Most Popular in the U.S.

We computed the relative strength values of the top 100 most popular stocks and ETFs traded in ther U.S. Them, the RSIs were sorted by short term and long term. This provides an excellent indication of what is overbought and oversold.

Decisions to buy and to sell are always dependent on each investor's timeframe. The tables below suit both investment horizons (short term, as in days, and long term, as in months).

Short term:

Top 20 most oversold:

The most oversold stocks are EWT (Taiwan Index) and BSX (Boston Scientific)

Top 20 most overbought:

The worst offenders here are Kodak (EK) and GNW.

Long term

Top 20 most oversold:

Most oversold in the long term is the horribly-performing natural gas ETF UNG and the ultra ETF QID.

Top 20 most overbought:



The most overbought stocks here are F and STX.

You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool.

Here are the top 40 and their trading volumes:



With thanks to miadhach on Skype for the list of top 100 most active.

Apple's Real Business Model: The Hype is Over, Now AAPL Headed Down

The iPad hype is all over now and there is a negative engulfement line on AAPL (click for the alerts). AAPL is headed down to the $182 level, possibly $162.

These comments below from INO's President are from last week's on the iPad release, and they were right on. I agree 100% on his take of Apple's business model. I have a daughter who gave her credit card info to iTunes...

"Steve Jobs walked onstage and unveiled Apple’s latest creation - the iPad. Having watched almost every key address for Apple for many years I, like many others, were disappointed that the product didn’t live up to the hype. Nonetheless, Apple will sell a boatload of these products, but not as many as the iPhone".



Watch the Technical Analysis Video.

"Upon reflection, it occurred to me that Steve Jobs is changing the whole business model of Apple and I don’t believe anyone has caught on to this yet.

In all the reports I’ve read after the launch of the iPad, I think every writer /analyst missed this key point: Steve Jobs wants to be like King Gillette.

If you don’t know who King Gillette was, you may not old enough to shave. King Gillette started his business at the beginning of the century. His business model is what I believe Apple’s business model will be in the future.

Long ago, King Gillette decided to practically give the razor away at or below cost, but sell the razor blades separately.

So here’s what I think, I think Apple wants to give the iPhone and the iPad to as many people as possible at cost or with a small profit. Remember now, AT&T subsidized the iPhone and Apple gets a slice of the pie from every AT&T customer that has an iPhone. Now why would they do that you might ask?

The key reason, I would argue, is that Apple wants the magic of recurring revenues. This is the dream of many companies - to have millions of folks paying a small amount of money every month for using a service. What makes Apple stand out is the fact that they have an army of developers who are writing code for some very cool apps. Yes, there is an app for that. In fact, there is an app for almost every idea ever thought of.

Not only has the app store been widely successful, but Apple also has iTunes, and iBooks along with iTV coming down the road. So this is what I believe Apple’s business model is going to be: with 125 million people who have giving Apple their contact and credit card information, Apple has a huge base of customers much like the newspapers and magazines did in the ’60s and ’70s, but on a much smaller scale. Now Apple can upsell products to those customers at will. The genius part about all of this is the fact that other people are creating products to be sold through the Apple store. Apple just reinvented the King Gillette model in a thoroughly modern way. Hat’s off to you Steve.

That’s my take on Apple’s stealth business model". Watch the Technical Analysis Video.

Profiting From The Oil Cycles: Next Low in 1 to 3 Weeks

Oil is trading in cycles of between 10 and 12 weeks. These can be easily seen on a weekly candle chart:



INO has a video showing exactly this today: Watch video. It also shows when to enter and to exit.

The average of the cycles is 11.5 weeks, we are currently in week 9.

To run the tool yourself, please use this link for a risk-free trial.

St Louis Fed: U.S Has Escaped Japanese-Style Deflation; Fed Must Look at Bubbles

James Bullard, president of the Federal Reserve Bank of St Louis and a a voting member of the Federal Reserve’s says the US has escaped the danger of a Japanese-style deflation.

According to him, that was the main concern in 2009, but that risk has now passed.

I am not sure that is an optimist view or just the opposite, meaning high-inflation is on its way.

Bullard says he is happy to continue with the current guidance in terms of interest rates, but added that added that, although it was not time to tighten policy, members of the Fed's policy setting committee would weigh in their decisions factors other than inflation and unemployment.

This includes considering asset bubbles.

“I think they’re gaining weight with many people because of the bad experience we had in the aftermath of the last recession, the housing bubble and how that really has blown up and caused so many problems,”.

“I think what the operating regime will really look like going forward is an open question and one that the committee is working on,”

According to an interview to the Financial Times, Mr. Bullard also emphasised that "an end to the unusually low spread of 25 basis points between the discount rate and the interest rate paid on reserves held at the Fed should not be seen as an immediate precursor to a general tightening of monetary policy".

“I think it makes sense today to think about it in terms of a liquidity context,” he said. “The reason it’s so low is exactly because we’re trying to address a huge crisis and a very special situation.” The broader post-crisis economy was “on track” with its recovery, he said. “It’s not a real strong recovery but that’s what we had predicted anyway. But it will be above-average growth for the first half of 2010 and we’ll probably see some positive jobs growth in the first part of 2010 here.”

On political interference

“I think it’s dangerous for America and dangerous for a global economy to try to divorce this central bank from true understanding of financial markets, and I think that that’s the direction we’ll be going in if we separated out the central bank from regulation,”

“What this crisis has shown is that our understanding of financial mediation and how it can impact on macro economy was not good enough. So what you want is to force the central bank to get better understanding and more information about financial markets as they’re making monetary policy decisions.”

Investing - and Properly Diversifying - in Foreign Currencies

There are many foreign currency ETFs in the market (we track them live here) making it very easy for investors to diversify away from the US dollar.

However, many investors may not realize that most of the currencies are correlated, making them very bad paired investments. In order to properly diversify, correlations should be close to zero.

These are the updated correlations for December 2009 and January 2010 for all currency ETFs:

(please click to enlarge)

The are some of the best non-correlations:

• CNY and BNZ, DRR, ERO, EU, FXE (Euro) , FXC (Canada)
• BNZ and CYB, ICI
• DBV (the G-10 leveraged ETF) and the Euro ETFs, FXB, ULE, URR
• FXC (Canada) and GBB (UK)
• FXY and ICI, XRU
• ICI, JYF, JYN, YCS

To receive technical analysis and alerts of these ETFs sent automatically to you simply enter the symbols in the Technical Trend Analysis Tool

The ETF Graveyard: Many ETFs Shutting Down, Lots More in 2010

Investors love ETFs, there is no question about it. There are over 800 ETFs that trade in the U.S (that we track). Investors are abandoning the high-fee mutual funds en masse.

However, the recent proliferation of ETFs is staring to cause fatal victims. Wizdom Tree has announced that it is shutting down 9 ETFs, among them, DBT, DPN, and DRF:

WizdomTree has specialized in international and fundamentally-weighted funds, among them, our favorite BZF (which is not shutting down). The ETFs being closed represent 3% of WisdomTree’s $6B in assets under management.

The ETFs will stop trading effective March 24th, 2010 and are being shut down because of insufficient liquidity.

The largest ETF dieing is the WisdomTree International Communications Sector Fund (DGG) which had roughly only $27M in assets.

The funds that will be closed are as follows:

• International Technology Sector Fund (DBT)


• International Financial Sector Fund (DRF)


• International Health Care Sector Fund (DBR)


• International Consumer Staples Sector Fund (DPN)


• International Consumer Discretionary Sector Fund (DPC)


• International Industrial Sector Fund (DDI)


• International Communications Sector Fund (DGG)


• Europe Total Dividend Fund (DEB)


• Earnings Top 100 Fund (EEZ)


• U.S. Short Term Government Income Fund (USY)

There are more than 150 ETFs with assets of less than $20M, the graveyard will get quite crowded.


You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).

Top 20 ETFs to Buy and To Sell For February - Out of 800 ETFs

We computed the relative strength values of all ETFs that trade in the US (over 800 of them). These values give a very good indication of what is overbought and what is oversold for a desired timeframe.

Here the top 40, 20 oversold and 20 overbought, sorted by monthly rsi.

Top 20 Most Oversold (long term):





The most over sold ETFs are ITM (Market Vectors Intermediate Municipal Index) and SMB, (Market Vectors Short Municipal Index)

Top 20 Most Overbought (long term)



On the overbought side, a very interesting top ECH, which is the Chile ETF. As reported here earlier, Chilean stocks are indeed on fire, in particular, SQM the great chemicals and fertilizers company.


Next is ULQ, Claymore U.S. Capital Markets Micro-Term Fixed Income.

Note: You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).

Roubini: We Are in Trouble, U.S. Growth is Dismal, Unemployment to Rise

Professor Nouriel Roubini said in Davos this weekend that the U.S. growth outlook remains very dismal in spite of the great looking GDP figure released last Friday.

“The headline number will look large and big, but actually when you dissect it, it’s very dismal and poor,” “I think we are in trouble.”

He added than more than half of the growth was related to a replenishing of depleted inventories and that consumption was reliant on monetary and fiscal stimulus. As these naturally decline in 2010 the rate will slow to 1.5%in the second half of the year.

Unemployment To Rise

He says now that while the U.S. will not back into recession, U.S. unemployment will rise from the current 10%.

“It’s going to feel like a recession even if technically we’re not going to be in a recession,”

Bloomberg article.